A hard-up North council is challenging Government population figures - which could cost it £2.4 million in grants.

Newcastle City Council leaders say civil servants have got its population badly wrong.

The council believes 4,500 people were not included in the 2001 National Census returns - used to calculate population.

Population is a major factor in revenue support grant the city receives from Whitehall.

Council leaders want ministers, including deputy prime minister John Prescott to reconsider the city's population and the level of grant.

Any extra money the council receives could be used to bolster vital public services or reduce April's council tax increase, expected to be six per cent.

Civic Centre officials believe 2,300 properties, or 4,500 people, were missed off 2001 Census returns for Newcastle. They also believe students numbers were under-estimated.

Newcastle's population is falling, as people move out to North Tyneside and Northumberland or leave the North East.

To arrest the decline, the council has embarked on major regeneration projects to provide more good quality housing and employment opportunities, these include the Newcastle Great Park development near the airport and the Going for Growth plan, to transform rundown areas.

According to official figures Newcastle's population slumped from 275,000 in 1991 to 260,300 last year.

The council is now asking the Government to reassess the latest figures, compiled by the Office for National Statistics.

The council got a 4% increase in grant cash, above the rate of inflation but below the national average increase of 4.9%.

Council Labour leader, Coun Tony Flynn, said: "I welcome the extra 4% from the Government as proof that it has listened to our representation.

"However, it's still less than the average increase and not enough to tackle significant cost pressures the council faces.

"That is why we are looking at ways of increasing our allocation by questioning the population levels the Office for National Statistics says we have in Newcastle.

"On a more positive note we are delighted we can continue to support the critical work of our excellent three-star social services directorate in caring for the most vulnerable."

Newcastle is among several cities challenging their population figures including Bristol, Middlesbrough, Milton Keynes, Nottingham, Oxford and Plymouth. Manchester has already appealed successfully.

A spokesman for the Office for National Statistics said no formal approach has been made by Newcastle Council on Census figures or population estimates but they are talking to a number of authorities to help them understand figures fully.

"We have no evidence there is anything amiss with the figures," he said. He said a long-term review is underway with the aim of improving the quality of population statistics.